In a Chapter 13 bankruptcy, tax refunds are treated as disposable income, and as stated in other articles, by default all disposable income is to be turned over to the trustee. However, the following are the most common avenues we take to ensure our clients are able to retain some, or all of their tax refunds.

Application to Retain: If a client has unexpected expenses, not already accounted for in their budget, we often submit an application with the trustee’s office to retain some or all of their refund. Examples of this is home repairs, vehicle repairs, vehicle replacement, and post-petition medical expenses. We sit down for a meeting which takes approximately 30 minutes, we review the tax returns, and documentation for these unexpected expenses and submit the application that day. Often, we can have the refund request approved within a week.

100% Plan: Bankruptcy plans where the client is already paying their creditors back at 100% are automatically approved to retain 100% of their refund. However, clients may turn over some or all of their refund in order to reduce their plan length.

More than 36 months into a 36-month ACP Plan: A 36-ACP is a case where the client passed the Means Test, but decided to file a Chapter 13 for another reason. In those cases, after the client successfully completed 36 months of their plan, the client is able to keep any future disposable income.

Built into Budget: Clients can list a proration of their tax refund on their Schedule I. For example, the client can list “ProRated Tax Refunds” under miscellaneous income for the amount of $500. By doing so, the client automatically gets to retain $6,000 from each tax refund. If they need to keep more, they may submit an Application to Retain with the trustee.

If you have questions about this process, or if you want to know what Russell can do for you, feel free to give us a call at (616) 920-0555.